A lot goes at the back-end of start-ups before it starts to translate into millions and billions
Greed drives thoughts and can be seen around by the numerous start-ups that take wings around us. I move in circles where the marriage of finance and technology is bringing out amazing ideas. Okay, some of it is amazing to the extent of being absurd. For instance, I heard a young chartered accountant go gaga about how his venture would make tax filing a five minute exercise and scale up to have 100 million users over three years. I had no intention of killing his enthusiasm, considering the fact that data shared by the tax authorities indicate that we had 2.87 crore individuals who filed income tax returns in 2012-13.
He was basically aiming to get half the taxpayers to use his online venture to file returns. He was planning to charge them a small fee for this service and he was funded handsomely for this idea at the idea stage. I was envious of him when I had heard the quantum of funding wondering if I was in the wrong profession. I was also curious to understand why he was meeting me to discuss this gem of an idea. It turned out that beyond this feature, he did not have anything else on offering and was generally trying to pick my brains on what else he could bundle. He was also looking to source content.
The dream of being valued in billions is driving people towards madness. I see professionals leaving their jobs and setting up little e-businesses all around me. There are scores of fintech companies promising to offer the best of its kind product and service being launched everyday. At a time when everyone has a great idea which is scalable and has a unique proposition, I wonder how many of these will survive a few years, forget having a life like say an ITC, which celebrated its centenary in 2010. No one knows.
What these dreamers are also doing is spreading their wealth, as and when they make it. The ESOP lore is much told and recounted from time to time. Those who succeed are also giving wings to ideas of the next generation dreamers. Assume over the past five years, 1 lakh Indian entrepreneurs started a business and 1 per cent of them got an average valuation of $1.5 billion which is about Rs 100 crore, something that several films manage to rake in these days. The combined wealth by these start-ups would have generated significant employment and ideally have contributed handsomely to the exchequer and also GDP.
Getting the money
However a fundamental disconnect when it comes to funding these start-ups' absurd valuations is the norm and greater the loss, greater the valuation. The Flipkart story is there to see, great valuation, which over the past year is being pared and the structure of the company is undergoing changes faster than one can comprehend. Exits are high and so is attrition, which is all synonymous with start-ups. Suddenly, there is a lot of notional wealth and money, but very little in hand.
To share a few example of the absurdity: I met a chief fun officer some days ago, whose sole job was to bring in a party environment at the workplace. So, when I went over for a New Year’s do, I was surprised to note how the gift hamper for every employee had the office logo on sweatshirts along with an iPhone 7 and vouchers to a 5-Star resort which had to be consumed before January 15. Everyone was happy, no one really bothered much after a few drinks other than let their hair down and dance to some trance music.
I got a few private minutes with the founder, who looked rather grim and opened up about how the next round of funding was getting delayed. He was not upset about the monies gone into the party, he was not upset that the venture lacked clear revenue streams; he was upset that he may have to spend the New Year’s eve meeting another funder who had invited him over, ruining his plans for a quiet evening at home.
Here was a guy with 100 odd employees in his rented office place in tony Gurgaon who had little money to last a couple of more months, who instead of worrying over the next round of money, was upset about his New Year even being wasted over a discussion to raise money.
I do understand the start-up space and some of the more successful ones succeed because there is someone out there who understands ROI and does not waver from that approach to running his operations. In contrast, I know of a florist next to my office. He can be seen one day in an Audi and another in a BMW. Many years ago, I asked him the secret of his success. He had a strange look at me. Then he told me over a shared cup of tea from a shack he had rented to a tea seller next to his flower shop – you need to spend less than you earn and you have to keep looking at ways to increase your earnings.
It was my turn for a quizzing look, when he opened up further to narrate how he inherited a shop space but had no money to operate it. He tried his hands at a few things before he flourished as a florist. He realised that earning money was not difficult as long as you understood money flow and how its value goes up if it is deployed gainfully. Not to be content with what he had and was making, he ensured his children went to good schools and did not get distracted with his business. I heard from him how they are settled abroad now, and how he makes a month long trip each year to be with them.
His success mantra is all to do with ROI in everything that he does. He pays his taxes and over the years has expanded into a few other ventures. Behind all his success is the foundation of running a business that he understands at all levels. And, that is something which I find at times missing with the start-ups. They start with an idea and then the desire to scale and expand gets them excited only to at someday be so different from their early moorings that one no more understands what the business is anymore about.